Wednesday, November 25, 2015

The Real Test for Innovation

When something gets promoted as innovation, does it actually increase market size or availability for populations as a whole? After all, this is the primary test for innovation, and "access" isn't the same thing if the marketplace is essentially unchanged. Whereas if more of a marketplace becomes available to consumers in a real sense, what gets promoted as innovative action can be deemed accurate.

For instance, Obamacare as "improved" marketplace access was never real, because none of this frenzied organizational capacity ever increased the amount of time/knowledge based services product. There is no getting around the fact that increased demand (particularly for time based product) depends on increased supply, as well.

Innovation as concept, can be thought of in numerous ways. Whether or not a process proves innovative, also relies on other economic framing and circumstance which could potentially change the result. While many innovations result from internal technological processes, much depends on how organizational structures interact with one another, in the broader marketplace. Noah Smith wrote recently about the minimum wage as a form of innovation, in a long term sense:

...in the very long term, minimum wage laws might force companies to do what they otherwise wouldn't do--make risky bets on new technologies. And as workers raise their own skill levels, that new technology would raise their wages as well. The entire economy, including any workers who temporarily lost their low wage jobs, would benefit in the long run.

Granted, it's not difficult to imagine how this scenario plays out. Someone with reliable city access (through family, etc.) decides to go back to school, after a series of low skill jobs upon high school graduation. One could imagine local restaurants upgrading in ways which require less help, as contributing to the city dweller's decision. Some sorting along these lines toward higher skill work has indeed taken place. Just the same, asymmetric compensation is a polarizing factor, for time aggregates as a whole. As a result, some individuals may be tapped for a mere fraction of their skills potential - or possibly not at all, in areas which already suffer from a lack of economic complexity.

What of Noah Smith's tentative argument, for long term benefit from higher wages? Presently, more income at all levels is set aside for the necessities of non tradable sectors than was previously the case. This means higher wages will not have the same chance as before, to contribute to a tradable goods marketplace capable of providing further growth. Instead, income capacity is simply being shifted about in non tradable sectors, which are presently holding back production both in services formation and housing. For this reason, I would question higher wages - at least in the present - of providing sufficient contribution to marketplace capacity and growth.

When are firms inclined to innovate - i.e. generate more product for the marketplace than would otherwise exist? In the past, innovation has been most closely associated with tradable goods, which otherwise might not even be recognized as consumer options. Whereas for non tradable knowledge based services product, innovation for a particular product may appear completely new, but it nonetheless represents product which people expect on a regular basis. Until now, non tradable sectors have been less inclined to innovate for broader access, because of a ready made marketplace for their product under any circumstance.

Can non tradable sectors adapt, and begin the structural reforms which would contribute to marketplace growth and political stability? For a long time these sectors didn't have to, as tradable goods production provided the impetus for worldwide growth and prosperity. However, the time has come for entrenched interests to embark on production reforms, before political circumstance and monetary policy only become worse. Those who have the courage to do so, would be providing a service of value beyond measure. Innovation is always about a marketplace which provides greater access and more hope for the future. Otherwise, "innovation" is mostly about temporary profits, uncertainty and further instability.